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The Most-Bought Financial Stocks of Investment Gurus

The financial sector may not benefit from a dovish Federal Reserve, but some prominent investors are still finding it attractive and loading up.

Year to date, the SPDR Financials ETF (XLF) climbed 11.17%, a moderate performance over a period in which all S&P 500 sectors have gained. Energy, the worst performer, edged up 0.77%, while the best performer, technology, soared 27.57% and the index overall jumped 15.7%.

Charles Schwab head of market and sector analysis Brad Sorensen rated financials "market perform" last week, expecting the sector to follow the slope of the yield curve. Financial tend to rise as the curve steepens and modestly underperform when it flattens or inverts, he said in a research note. The trend this year has been for a flatter yield curve, until yields on two-year and 10-year Treasuries flipped last week. Because financials derive income from the difference between the money they lend out at long-term rates and the money they pay in interest at short-term rates, narrow or nonexistent spreads can squeeze their ability to grow.

"However, we continue to believe that investors who need to add to financial positions should use these pullbacks to do so as financial companies have tended to show resilience and the ability to remake themselves historically and we believe they'll do so again this time around," Sorensen said.

Some investors, such as Warren Buffett (Trades, Portfolio) and Bill Nygren (Trades, Portfolio), see strong appeal in the sector. Buffett has more than 47% of his Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) portfolio invested in financials, including banks, credit services and insurance. That is the highest percentage he has dedicated to the sector in a decade of data.

Bill Nygren (Trades, Portfolio) expanded his Oakmark Fund position in financials to 30.73% in the first quarter, up from 20.47% in the previous three-month period. It is the largest sector represented in both his Oakmark and Oakmark Select Fund. The investor described important criteria and valuation metrics he considers when investing in banks in a recent interview with GuruFocus:

"Because of the high financial leverage at banks, rather than adjusting price targets for management quality, if we don't like the management and culture of a bank, owning it is simply a non-starter," he said. "Banks are one of few industries where traditional metrics like price-to-book (P/B) or price-to-earnings (P/E) do a pretty good job of capturing value. We think a well-run bank should be able to earn 13-15% on its tangible equity and sell at 13-15x earnings. That equates to a price-to-book target of roughly two times."

Many investors GuruFocus tracks acquired financial stocks during the second quarter, according to data compiled this month. According to the GuruFocus S&P 500 Screener, the most-bought stocks were: Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), Visa (NYSE:V) and Berkshire Hathaway (NYSE:BRK.B).

Wells Fargo (NYSE:WFC)

Eighteen investors GuruFocus tracks bought shares of banker Wells Fargo & Co. in the second quarter. Leon Cooperman (Trades, Portfolio) started a position, and Jim Simon's 63.87% increase was the largest addition to an existing position. Joel Greenblatt (Trades, Portfolio) made the largest reduction, cutting his holding by 84.68%.

Wells Fargo & Co. has a market cap of $198.27 billion; its shares were traded around $45.00 Wednesday with a price-earnings ratio of 9.32 and price-sales ratio of 2.41. The trailing 12-month dividend yield of Wells Fargo & Co. is 4.08%. The forward dividend yield of Wells Fargo & Co. is 4.57%.

Bank of America (NYSE:BAC)

Sixteen investors GuruFocus tracks bought Bank of America shares in the second quarter. Simons started the largest new position with 0.01% of outstanding shares. Caxton Associates (Trades, Portfolio) made the largest increase to a holding, at 68.71%.

Bank of America Corp. has a market cap of $250.67 billion; its shares were traded around $26.93 Wednesday with a price-earnings ratio of 9.62 and price-sales ratio of 2.90. The trailing 12-month dividend yield of Bank of America Corp. is 2.25%. The forward dividend yield of Bank of America Corp. is 2.69%.

Morgan Stanley (NYSE:MS)

Eleven investors GuruFocus tracks bought shares of global investment bank Morgan Stanley during the second quarter. Simons bought the largest position with 0.08% of shares outstanding. Greenblatt added the most shares, increasing his holding by 77.35%. Caxton Associates (Trades, Portfolio) decreased its position the most, cutting by 44.97%.

Morgan Stanley has a market cap of $66.01 billion; its shares were traded around $39.94 Wednesday with a price-earnings ratio of 8.70 and price-sales ratio of 1.87. The trailing 12-month dividend yield of Morgan Stanley is 3.13%. The forward dividend yield of Morgan Stanley is 3.51%.

Visa (NYSE:V)

Eleven investors GuruFocus tracks also bought shares of payments company Visa. Steven Cohen (Trades, Portfolio) started the largest position, with 0.02% of outstanding shares. Greenblatt made the largest increase, at 34.14%. Simons made the largest cut, at 76.65%.

Visa Inc. has a market cap of $405.38 billion; its shares were traded around $180.94 Wednesday with a price-earnings ratio of 34.74 and price-sales ratio of 18.60. The trailing 12-month dividend yield of Visa Inc. is 0.55%. The forward dividend yield of Visa Inc stocks is 0.56%. Visa Inc had an annual average earnings growth of 22.30% over the past 10 years. GuruFocus rated Visa Inc the business predictability rank of 4.5-star.

Berkshire Hathaway (NYSE:BRK.B)

Eleven investors GuruFocus tracks bought shares of insurance conglomerate Berkshire Hathaway. Bill Ackman (Trades, Portfolio) started the largest position, with 0.15% of outstanding shares. Mario Gabelli (Trades, Portfolio) made the largest increase, growing his position by 100.95%. Bruce Berkowitz (Trades, Portfolio) made the largest reduction, eliminating 86.08% of his holding.

Berkshire Hathaway Inc. has a market cap of $488.55 billion; its shares were traded around $199.24 Wednesday with a price-earnings ratio of 16.07 and price-sales ratio of 1.88. Berkshire Hathaway Inc. had an annual average earnings growth of 7.40% over the past 10 years.

See more of the most-bought financial stocks using the S&P 500 Screener here.

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This article first appeared on GuruFocus.